Monday, October 2, 2017

The articles in the two urls below present different perspectives on the same issue – a proposal from the Trump administration to raise the threshold of share ownership before an individual investor can table a shareholder resolution at a firm's AGM:

"A proposal in the Financial Choice Act passed by the U.S. House of Representatives to increase the required threshold of stock ownership to present resolutions at annual general meetings would … [raise] the threshold to 1% of shares held for at least three years from the current rule of owning at least $2,000 in shares for one year."

Critics have noted the timing of the rule change, coming on the back of a successful year for such resolutions:

"[The proposal] may just be a backlash to the trend of large institutional investors being more active in their demands around governance, environment and social issues. … This proxy season, a record number of resolutions on disclosure over climate risks got majority support against a board recommendation, as large institutional investors such as BlackRock voted with the proponents."

Perhaps not surprisingly, the WSJ article is more in favor of the proposal, arguing that, at present, a minority of total shareholders submit the majority of resolutions and, in the process, use a lot of firm resources:

"According to the Business Roundtable, 'only three shareholders and their families were responsible for nearly 22% percent of all non-management shareholder proposals submitted to Fortune 250 companies in 2016.'"

In contrast, The NYT argues against the proposed rule change because it will constrain significantly the ability of shareholders to voice their concerns:

"One percent may not sound like much, but it can be enormous. Consider Exxon Mobil. It has 4.2 billion shares outstanding, so the 1 percent threshold would mean an investor would have to own 42 million shares, worth $3.4 billion, to be able to submit a proxy proposal. Exxon Mobil has throngs of institutional investors, but only the top seven holders would meet the threshold. And many of these institutions — such as Vanguard, BlackRock and State Street — have been unwilling to challenge company management historically, exactly what submitting a shareholder proposal involves."